STMicro, Ericsson Said to Fail to Find Chip-Venture Buyer

STMicroelectronics NV (STM) and Ericsson AB, the partners looking to pull out of their ST-Ericsson venture, have failed to find a buyer for the wireless chip business after a three-month search, according to six people familiar with the situation.

As a result, the owners are considering winding down the four-year-old partnership as one option for its future, four of the people said, asking not to be named because the discussions are confidential. Potential buyers that were approached, including Samsung Electronics Co. (005930), declined to make an offer, said two of the people.

STMicroelectronics and Ericsson want to complete an exit from the 50-50 partnership in the third quarter. ST-Ericsson has struggled to introduce higher-powered chipsets and platforms as the low-end handset business at major customer Nokia Oyj (NOK1V) shrank. ST-Ericsson said this week that Didier Lamouche, its third chief executive officer in as many years, will step down to pursue other opportunities. No successor was named. The venture has accumulated $2.7 billion in net losses since 2009.

While no final decision has been made, in the event of a wind-down, Ericsson could take back a research site in Lund, Sweden, and STMicroelectronics could integrate a site in Grenoble, France, three of the people said.

Photographer: Simon Dawson/Bloomberg

STMicroelectronics and Ericsson want to complete an exit from their ST-Ericsson venture in the third quarter. Close

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Photographer: Simon Dawson/Bloomberg

STMicroelectronics and Ericsson want to complete an exit from their ST-Ericsson venture in the third quarter.

STMicroelectronics shares rose 0.3 percent to close at 5.84 euros in Paris, while Ericsson rose 1 percent to 83.6 kronor in Stockholm.

Continuing Losses

Yesterday, STMicroelectronics shares fell as much as 5 percent, the most in four months, after Bloomberg’s report, and closed down 4.4 percent. Ericsson pared gains of as much as 2.7 percent, closing up 0.7 percent.

If no buyer has been found, “this could make ongoing operating losses at ST-Ericsson more of a drag than the market anticipates,” Francois Meunier, an analyst at Morgan Stanley in London, said in an e-mailed note. An exit in the third quarter “seems ambitious” and may cost more than the $500 million STMicroelectronics has budgeted for it, Meunier said.

Alexis Breton, a spokesman for STMicroelectronics in Paris, and Ericsson spokesman Ola Rembe declined to comment. After Lamouche’s resignation, Ericsson said it’s still exploring all options and that both owners are eager to find a solution.

Samsung declined to comment in an e-mailed statement to Bloomberg News.

Job Cuts

Putting an end to the Geneva-based venture is considered a last resort because of job cuts that might result. Under Lamouche, a 53-year-old Frenchman who has overseen the venture since November 2011, ST-Ericsson announced plans to eliminate 1,700 jobs and transfer some product development to STMicroelectronics.

That wasn’t enough. The chip designer, created when Geneva- based STMicroelectronics and Stockholm-based Ericsson injected $1.8 billion in cash and some wireless technologies, reported a net loss of $749 million last year.

Lamouche said a year ago that he expected the company and its 5,000 employees needed to make “clear sacrifices” to reduce costs, including reducing some of its 44 research sites worldwide -- among which Lund and Grenoble are the biggest.

Government Influence

Moving some operations back to the two shareholders could limit job cuts, which aren’t favored by European governments. In France, where ST-Ericsson employs 1,200 people, mainly in research and development, Socialist President Francois Hollande has pushed back against companies scaling down. ST-Ericsson has about 1,400 employees in Sweden. STMicroelectronics is 27.5 percent owned by the French and Italian governments.

JPMorgan Chase & Co. (JPM) is advising on options for the venture.

ST-Ericsson, which competes with San Diego-based market leader Qualcomm Inc. (QCOM), hasn’t been profitable as its smartphone and tablet chips failed to offset a decline in sales of older products.

Europe’s semiconductor makers are trying to cope with the industry’s sharp price and demand swings. They are losing market share to Asian and U.S. competitors that have switched to so- called fabless models, dispensing with factories in favor of outsourcing to foundries such as Taiwan Semiconductor Manufacturing Co. (2330) That allows chipmakers to adjust designs and production more quickly without the overhead of running their own plants.

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net; Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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